India’s retail inflation print for March came in softer than expected, but a majority of economists believe the benign reading may not last, with rate hikes likely from the second half of FY27 as price pressures build.Data released on April 13 showed the Consumer Price Index (CPI) at 3.40% in March 2026, marginally below the CNBC-TV18 poll estimate of 3.46%, though slightly higher than February’s 3.21%. While the headline number remained comfortable, economists pointed to emerging risks from energy prices, supply disruptions and currency pressures.
Sakshi Gupta, Senior Economist at HDFC Bank, said the latest print indicates that the pass-through of higher energy costs due to the West Asia conflict is yet to fully play out. “The number that has come in was lower than the consensus as well as our estimates, and it suggests that the pass-through of higher energy costs hasn’t really played out in a big way,” she said.
Gupta noted that core inflation eased slightly, helped by softer gold prices, and that most components of the CPI basket showed “very comfortable monthly momentum”, barring fuel and services such as restaurants and accommodation, which saw some uptick.However, economists cautioned against reading too much into the March data. Indranil Pan, Chief Economist at Yes Bank, said the current numbers appear benign “on paper”, but warned that the inflationary impact of global disruptions is yet to filter through.“March is too early to actually factor in the inflationary impact… We might have a bit of a surprise going ahead,” Pan said, pointing to rising crude prices, potential fuel price hikes and increasing input costs as inventories are replenished at higher prices.Echoing similar concerns, Anitha Rangan, Chief Economist at RBL Bank, expects inflation to firm up in the coming months. She said CPI could hover around 4% in the April–June quarter as energy price pass-through accelerates, particularly from commercial fuel segments.
Rangan also highlighted a shift in inflation dynamics, noting that rising consumer expectations could hasten price transmission. “Consumers are bracing for price hikes, making it easier for producers to pass on costs. Second-order effects may come faster this time,” she said.From a market perspective, Ashhish Vaidya, Managing Director and Treasurer – Global Financial Markets at DBS Bank India, said bond markets have already begun pricing in future risks despite the softer print. Yields eased marginally after the data, but underlying concerns remain.“The initial reaction reflects what the bond markets had already priced in… A lot of pass-through has not yet happened,” Vaidya said, adding that interest rates are likely to stay elevated or move higher amid weak capital inflows and currency pressures.He flagged continued stress on the external front, with limited positive triggers for the rupee and a widening current account deficit likely to keep markets on edge. Vaidya expects the currency to trade in the 90–95 range against the dollar in the near term, alongside a gradual firming up of yields.On monetary policy, views were largely tilted towards tightening in the later part of the financial year. While Gupta does not currently expect rate hikes, others see a clear shift ahead as inflation risks build.Also Read | India’s March retail inflation at 3.40%, below estimates; food prices risePan indicated that if inflation trends closer to or above 5%, the Reserve Bank of India may prioritise price stability over growth, opening the door for policy tightening. Rangan expects at least a 50-basis point increase, while Vaidya suggested that a typical post-shock cycle—from price rise to supply disruption and eventual tightening—could lead to rate hikes from the second half of FY27.The divergence in views underscores the uncertainty around the inflation trajectory, even as the March data offers near-term comfort. Food inflation has already edged higher to 3.87% from 3.47% in February, while both rural and urban inflation have inched up, signalling underlying pressures.For now, headline CPI remains within the Reserve Bank of India’s comfort zone, but economists broadly agree that the window of benign inflation may be limited as global and domestic headwinds begin to feed through.
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